With the sustained stability of the naira trading value and zero arbitrage, Nigeria’s foreign exchange (FX) market as it is known today may be transforming, GEOFF IYATSE writes

Foreign exchange (FX), globally, thrives on spread. One can only make or lose money because there is a gap between two time periods – when one buys and sells units of a certain currency. The wider the spread, measured by the volatility ratio, the more profits or losses (which are determined by a blend of factors, including expertise and fate) traders make.
Naira trading has been a lush business since the post-Structural Adjustment Programme (SAP) because the spread, a cause and effect of manipulation, has been extremely wide. The trend assumed a crisis proportion in recent years as the swings became more regular. After the 2023 market liberalisation, for instance, inter-day deviations from the mean were as high as 20 per cent in some cases.

The high volatility ratio provided an opportunity for smart traders to make quick money. It is also a source of worry for investors and players in the real economy. Dr Muda Yusuf, a private sector advocate, in many instances, raised concern about the potential damage a highly volatile naira posed to the economy.

As the crisis continued, foreign fund managers and holders became increasingly worried about the economy. And they started holding back their capital. For the first time in over 10 years, capital importation was at its lowest at $3.9 billion, which was 40 per cent of the inflow received during the COVID-19 year and a mere 16 per cent of its peak performance, that is, in 2019 when the country pulled was $24 billion.

As capital inflow fell so also was naira exchange value stability, which hit its height In January and February 2024. From January 26 to March 15, the naira fell from N900/$ to N1610/$, losing 44 per cent of its value in less than two months only to regain over 60 per cent of its loss value in the subsequent 30 days in what has become the most volatile era of the currency.

https://guardian.ng/business-services/business/naira-will-the-new-trading-pattern-survive-old-market-tricks/